For Immediate Release
Chicago, IL – October 26, 2022 – Today, Zacks Equity Research discusses Caterpillar Inc. CAT, Hitachi Construction Machinery Co., Ltd. HTCMY, H& E Equipment Services, Incorporation. HEES and Terex Corp. TEX.
Industry: Construction plus Mining
Link: https://www.zacks.com/commentary/1996926/4-stocks-to-watch-from-the-construction-mining-equipment-industry
The Zacks Manufacturing – Building and Mining industry is facing near-term challenges in the form of supply-chain constraints and flared-up input costs. The recent contraction in orders due to customers being cautious about their spending amid growing fears of a global economic slowdown, adds to the woes.
Industry players like Caterpillar Inc. , Hitachi Structure Machinery Co., Ltd. , H& E Equipment Solutions, Inc. and Terex Corp. are well-poised to gain despite the aforementioned headwinds, thanks to their cost-cutting efforts and investment in digital initiatives.
About the Industry
The Zacks Manufacturing – Construction plus Mining industry comprises companies that manufacture and sell construction, mining and utility equipment. They support customers using machinery within the building of commercial, institutional plus residential buildings, and infrastructure projects. Their equipment is also utilized in underground mining, drilling and mineral processing, and surface mining to extract and haul copper, iron ore, coal, oil sands, aggregates, gold, and other minerals and ores.
Their products are varied, including loaders, pavers, dozers, excavators, concrete mixer trucks, crushing, pulverizing & screening equipment, tractors and cranes. The business participants support oil and gas, power generation, marine, rail, plus industrial applications through their own reciprocating engines, generator sets, gas turbines and turbine-related services.
4 Trends Shaping the particular Future associated with Manufacturing — Construction and Mining Business
Recent Slowdown in Manufacturing Activity a Concern : Per the Federal Reserve, industrial production rose a meager 0. 4% in September 2022, following a 2 . 9% growth (at an annual rate) in the third quarter of 2022. Production output moved up 0. 4% within September. The particular index increased 1 . 9% at an annual rate in the 3rd quarter, decelerating from the 3. 2% gain posted within the second quarter. In September, the particular Institute for Supply Management’s (ISM) manufacturing index registered 50. 9%.
Even though the reading indicates expansion for the 28th month in a row, it was the lowest since the reading through of 43. 5% in May 2020. The New Orders Index dipped in order to 47. 1% in Sept 2022 from 51. 3% recorded within August 2022. With a reading below 50, the index entered the negative territory and was at its lowest level given that May 2020, when it authorized 32. 3%.
This indicates that customers seem to be putting their particular reins on spending amid growing concerns of a global economic slow down. Also, some companies are unable to accept new orders due to the ongoing shortage associated with parts plus supply-chain snarls.
Demand inside Mining & Construction to Remain Strong : The intensifying global focus on shifting through fossil fuels in order to zero emissions will require a large number of commodities, which in turn, will help demand with regard to mining gear in the particular years to come. The particular U. S government’s plans to increase expense in facilities construction — particularly in critical subsectors, such as transportation, water and sewerage, plus telecommunications — will assistance demand in the coming years.
Cost Inflation & Supply-Chain Issues Persist : The industry is currently facing input cost inflation (mainly steel), transport and logistic costs. It has been struggling for a while to keep pace with the increase in demand due to the shortage of labor, supply-chain issues, high raw material lead times and continued crises associated with critical materials. The market players are making an all-out effort to bolster their financial condition, conserve cash and improve profitability.
The companies are constantly implementing cost-reduction actions, which are likely to help sustain margins in this scenario. The companies are usually focused upon streamlining their operations and realigning around high-growth key markets or customer segments to enhance their own performances.
Investment in Digital Initiatives to be the Game Changer : The industry participants are investing in electronic initiatives like AI, cloud computing, advanced analytics plus robotics. Electronic transformation aids organizations inside boosting productivity and increasing efficiency, reliability and safety, thereby enriching customer satisfaction. With the pressing need to cut carbon emissions, companies worldwide are relying more on autonomous machinery. Thus, the players within the Manufacturing – Design and Exploration industry are stepping up their research and technological capabilities in order to bring products into the market equipped with the latest technology.
Zacks Market Rank Indicates Dim Prospects
The particular group’s Zacks Industry Rank, basically the particular average of the Zacks Rank of all the member stocks, indicates dull prospects in the near term. The Zacks Manufacturing : Construction and Mining sector, a seven-stock group within the broader Zacks Industrial Products sector, currently carries a Zacks Sector Rank#155, which places it at the bottom 38% of 251 Zacks industries. Our research shows that the top 50% of the particular Zacks-ranked sectors outperforms the bottom 50 percent by the factor associated with more than 2 to 1.
Before we present a few stocks that will you may want to consider for your portfolio, let’s look at the particular industry’s current stock-market performance and the valuation picture.
Industry Versus Broader Market
The Manufacturing – Construction plus Mining industry has outperformed its sector as well as the Zacks S& P 500 composite over the past year. Over this particular period, the industry has declined 7. 3% compared along with the sector’s decrease of 18. 8%. The particular Zacks S& P 500 composite has fallen 17. 8% in the same time frame.
Industry’s Current Valuation
On the basis of the forward 12-month EV/EBITDA ratio, a commonly used multiple for valuing Manufacturing — Construction and Mining businesses, we see that the industry is currently trading at 8. 99 compared with the S& P 500’s 9. 76 and the particular Industrial Items sector’s trailing 12-month EV/EBITDA of 13. 72.
Over the last five years, the offers traded as high as 14. 83 and as low as 7. 04, with the median being in 10. 22.
4 Manufacturing : Construction & Mining Stocks to Watch
Hitachi Construction Equipment : HTCMY is developing a wide range of technologies to realize the autonomous operation of ultra-large hydraulic excavators at mines. It recently announced that this will showcase its full lineup of battery-powered mini and compact excavators from bauma 2022 to capitalize on developing demand regarding battery-powered electric hydraulic excavators for use in structure work in the particular European market.
HTCMY will be also strengthening its focus on value-chain businesses other compared to new machinery sales, such as parts and services, rentals, used equipment plus parts recycling. Plus, it is utilizing digital technologies to provide solutions at all points associated with contact along with customers. Shares of Hitachi Construction Machinery have dropped 21% in the past three months.
Headquartered in Tokyo, Japan, Hitachi Construction Machinery with its subsidiaries engages in the development, production, sales and service operations of hydraulic excavators, wheel loaders, road construction machines and mining machinery worldwide. The Zacks Consensus Estimate for HTCMY’s current-year earnings has relocated up 1% in the last 60 days. It has a trailing four-quarter income surprise of 245%, on average. The stock currently carries a Zacks Position #2 (Buy).
You can see the complete list associated with today’s Zacks #1 Rank (Strong Buy) stocks here .
Caterpillar : CAT’s revenues and earnings have been growing year over year intended for six straight quarters, thanks to its cost-saving activities, strong end-market demand plus pricing actions. Caterpillar’s backlog was a solid $28. 4 billion at the end of the particular second quarter of 2022, which will certainly boost the top line within the upcoming quarters. CAT is anticipated to gain from strength in residential construction and non-residential design in the United States, and robust demand to get mining products.
Caterpillar continues to concentrate on customers and the future by constantly investing in digital capabilities, connecting assets and job sites, plus developing the next generation of more productive and efficient products, providing it the competitive edge. The stock has gained 6% in the past three months.
Known for its iconic yellow machines, Caterpillar is the largest global construction and exploration equipment manufacturer. The Zacks Consensus Estimation for CAT’s ongoing-year revenue indicates year-over-year growth associated with 18%. The estimate provides moved upward 1% more than the prior 60 days. CAT has a trailing four-quarter profits surprise of 13%, on average. CAT has a good estimated long-term earnings growth rate associated with 12%. The particular stock presently has a Zacks Rank #3 (Hold).
H& Electronic Equipment Providers : The sale of the crane business executed last year makes it a pure-play rental company and poises it well for carried on expansion in the equipment rental business. HEES will obtain from its acquisition strategy, which focuses on identifying and acquiring rental companies to complement its existing business, broaden its geographic footprint and increase density within the existing markets.
H& E Gear Services lately acquired One Source Products Rentals Inc., adding 10 equipment rental locations in order to its branch network, including initial locations in Illinois, Indiana plus Kentucky. The particular buyout will add approximately $138 million to the fleet, as measured by the original equipment price. At the particular end of the second one fourth of 2022, the company had recorded navy original equipment cost (OEC) associated with more than $2 billion dollars. Efforts to grow the Parts and Services procedures will yield results, as it is a relatively stable high-margin revenue source. It also helps in building customer relationships, attracting customers and maintaining a high-quality rental fast. Shares of HEES have gained 3. 8% over the past three weeks.
Baton Rouge, LA-based H& E Tools Services is usually one associated with the biggest integrated tools services businesses in the United Says. The Zacks Consensus Calculate for this year’s earnings indicates growth of 42. 6% from the year-ago quarter’s reported figure. HEES has a walking four-quarter cash flow surprise associated with 45. 9%, typically. H& E Devices Services has an estimated long-term salary growth rate of 19. 7%. The stock currently carries a Zacks Position of a few.
Terex : TEX has been delivering year-over-year development in pay in the last six quarters, supported by strong bookings, revenue growth plus a margin expansion in both business sections. Its backlog has been on an uptrend over the past seven quarters and was a record $3. 47 billion with the end of the 2nd quarter of 2022. This, along with solid demand, pricing and cost-saving activities, positions the particular company well for improved results.
TEX is progressing well upon its “Execute, Innovate, Grow” strategy that will drive growth. In sync with this, it really is trading in innovative products, electronic innovation, manufacturing facility expansion plus acquisitions. Stocks of TEX have acquired 9% in the last three a few months.
Norwalk, CT-based Terex manufactures and sells aerial work platforms and materials processing machinery globally. The Zacks Consensus Estimate for current-year earnings shows growth associated with 29. 6% from your prior-year reported figure. TEX has a walking four-quarter benefit surprise of 31. 7%, on average, and an estimated extensive earnings development rate associated with 16. 5%. The share carries the Zacks Rank #3 on present.
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Caterpillar Inc. (CAT): Free Stock Analysis Report
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